The active management industry has been accused of undermining the long-term viability of the LGPS after research revealed managers accrued £4.5bn in reported fees over the last ten years and costs per member rose 110% while the value of the funds increased by a “nominal” 79%.
The increase in costs was described as “utterly shocking” by the Centre of Policy Studies who found the funds, which make up the largest funded pension scheme in the country, underperformed against a number of benchmarks.
Returns across the 89 funds lagged behind key indices with annual returns of just 5.3% a year between 2006 and March 2016, in contrast the FTSE All-World Index of equities recorded annual returns of 8.3% and the UK Barclays Equity Index saw returns of 5.4%, the report found.
It means, the CPS argues, that funds which are relied upon by some 5.4m workers and pensioners would have been better off invested into cheaper passive instruments which would have offered better returns.
“Over the last decade, the assets have under-performed the major UK and global equity and bond indices: passive investing would have been more rewarding. The only winner has been the industry, garnering over £4.5 billion in reported fees which, as a percentage of asset market value, have more than doubled over the decade,” the report stated.
The latest research, which the CPS said was in part inspired by the FCA’s ‘damning condemnation’ of the industry in its recent study of asset management, comes at a time when passive funds are increasingly winning the active versus passive debate and ETFs are becoming more readily accessible.
